EU Could Begin to Export Cereals Without Subsidies from 2004; Concerns Over American Subsidies
Paris, 27/04/2000 (Agence Europe) In the "agricultural perspectives" for the period 20002005 that it has just published, the OECD speaks of gradually strenghening agricultural markets. The recovery, after two years of falling prices, will, however, be modest over the first years, and real prices, adjusted for the inflation rate, should remain relatively unchanged although the longtenn trend will be for continued decline. As far as cereals are concemed, the lazy price strengthening", increasing stocks and low demand could come together to have an influence on production until 2001. The low dernand for exports, the descending phase that the production cycle in North America is going through and the low supply in the South Sea Islands should also mean that the production of beef will slow down over the first years of the given period. Despite the low cost of animal feed, the low prices of the final product will continue to make pigmeat production fall until 2001. Only the production of poultry should benefit from sustained expansion at the beginning of the forecast period, because of the fall in the cost of feed. Nonetheless, this same sector could see its growth slow down when the cost of animal feed rises in parallel to the expected strengthening of cereal and oilseed prices. World cereal production is gxpected to increase the fastest between 1999 and 2005, followed by oilseeds and sugar. Total meat supply should thus increase by 2005.
The agricultural production of the OECID area is expected to stagnate in the short tenn before rapidly picking up in the context of trade development. The demand for cereals and meat shovild increase in developing countries in particular, because of the continued rural exodus, the accompanying changes in eating habits and the rise in purchasing power. The agricultural negotiations under way at the WTO and, above all, the role that China will eventually play, provide unequalled opportunities to speed up the liberalisation process. The favourable outcome of these talks is expected to result in improved market functioning and the creation of a favourable environment and more marked strengthening of global trade and producers' incomes, notes the report, which also stresses that the liberalisation of trade with China would boost demand for farm produce, mainly if it: is accompanied by intemal reforms.
The report stresses that the "heads of State of the European Union responded to the depressed market situation by limiting the extent of reforms of Comnon Agricultural Policy, proposed by the European Commission in Agenda 2000. Nonetheless a ceiling has been put on agricultural spending and the Berlin agreement continues the policy aimed at abandoning aid represented by direct price support, to the benefit of direct payments which suffer less from distortion. The OECID considers that, in the context of a weak euro compared to the United States dollar, the EU could export corn without subsidies from 2004.
The OECD considers that American government aid probably delaved recovery and could entail market distortion. The report notes that the American administration strengthened its plan to assist farmers in 1998, by $5.6 billion essentially intended for cereal producers, and added a complement of $8.7 billion in 1999. The OECD considers, because of its standard nature, that this form of backdated aid should not create an inimediate effect of production distortion. "There is nonetheless the risk that American farmers, after two consecutive yeas of payments, now expect to automatically receive compensation each time world prices fall. Such a situation could lead to market distortion which is infinitely more serious", notes the report, which also expresses concem about the continuation in the United States of compensatory payments (3.7 billion in 1998 and over 5 billion in 1999) as loans (based on the FAIR Act). The OECD stresses that, by encouraging production, these programmes have boosted the quantities of products available for export (com, maize, cotton and oilseed).:
